With the energy price cap predicted to fall to around £2,000 for the average dual-fuel household in July, many are wondering whether they would be better off switching to a new fixed energy tariff.
Switching energy providers isn't as simple as it used to be thanks to the introduction of the Energy Price Guarantee and the quarterly updates to the energy price cap. It can be difficult to understand whether fixing your energy tariff is the right decision for you and so in this article, we take a look at the pros and cons of fixing your energy tariff as well as the things you should consider before switching to a new energy provider.
Is now a good time to fix my energy tariff?
Before considering whether now is a good time to fix your energy deal, it is worth taking a brief moment to understand how both the energy price cap and the Energy Price Guarantee work. We've provided a summary below.
Energy price cap explained
The energy price cap is set by the UK's independent energy regulator Ofgem. Its aim is to protect UK consumers from excessively high energy prices. The energy price cap is the maximum price that energy suppliers can charge per kilowatt per hour (kWh) and it applies to standard variable and default tariffs. The energy price cap is reviewed every quarter with the next announcement due in August 2023. Importantly, the energy price cap does not apply to fixed energy tariffs, so it is important to ensure you are getting a good deal before committing to fixing your deal. In some circumstances, it may be possible to move from a fixed deal to a standard tariff, but it varies from provider to provider and some providers may charge an exit fee.
Latest energy price cap figures
Rather than concentrating on the actual kWh charges for electricity and gas, the energy price cap is usually expressed as an annual figure, based on the average dual-fuel household bill. The energy price cap currently stands at £3,280, however, it will fall to £2,074 on the 1st July 2023.
While the energy price cap stands at £3,280, UK households currently pay less for their energy thanks to the Energy Price Guarantee. We explain more about how the Energy Price Guarantee works below.
Energy Price Guarantee explained
The Energy Price Guarantee (EPG) is a Government subsidy that ensures energy prices remain at a certain level for UK households. Introduced on 1st October 2022, the Energy Price Guarantee means that those who pay by direct debit pay a maximum of 10.31p per kWh for gas and 33.21p per kWh for electricity. The figures are slightly different for those on a pre-payment meter and those who pay on receipt of a bill. Like the energy price cap, figures are usually expressed as an annual figure, based on the average dual-fuel household bill, and it currently stands at £2,500.
Latest Energy Price Guarantee figures
The Energy Price Guarantee currently stands at £2,500. In July 2023, the Energy Price Guarantee will increase from £2,500 to £3,000 and it will remain in place until at least the end of March 2024.
What is a fixed energy tariff and how does it work?
A fixed energy deal allows you to pay a set price for your gas and electricity. The fixed price includes a fixed kWh charge for a unit of gas and electricity as well as a fixed daily standing charge (an amount paid daily no matter how much energy you use). Fixed-price energy deals usually last for a year, however, some suppliers allow you to lock in the price for longer. Most people choose to fix their electricity and gas prices with the same supplier, often referred to as a 'dual fuel' energy deal, however, customers are free to opt for different suppliers should they wish. Those who opt to pay by direct debit will usually receive a slightly discounted rate, meaning those that pay on receipt of the bill or via a prepayment meter will usually pay a little more.
Wholesale energy prices remained persistently high throughout much of 2022 and early 2023, meaning many UK households simply chose to stay on their supplier's standard variable tariff, as the rate that they pay is protected by both the energy price cap and Energy Price Guarantee. Currently, few fixed-price energy tariffs are available, however, this is likely to change in the coming months.
Should I fix my energy prices until 2024?
In May 2023, Ofgem announced that the energy price cap will reduce to £2,074 on the 1st July 2023, the same time that the Energy Price Guarantee is set to increase from £2,500 to £3,000. With lower energy prices on the horizon, fixed energy tariffs are likely to become attractive once again which leaves many wondering whether they should fix their energy tariff until 2024. The below image shows how the energy price cap and Energy Price Guarantee have changed in recent months and where they are likely to be in the coming months.
You can see from the image above that energy prices are predicted to fall this year which could make fixing your energy deal more attractive. There are, however, some considerations before committing to a new fixed-price energy tariff, which we explain below.
Things to consider before fixing your energy tariff
1 - Check how much you currently pay
Before you switch energy providers you should take the time to understand exactly what you currently pay and what type of deal you are on. Check whether you are on your provider's default standard variable tariff or whether you are already in a fixed deal. Check how much you are being charged per kWh for gas and electricity and also note down your daily standing charge. Also check how you pay your bill as this can impact the price you currently pay. Do you pay by direct debit or on receipt of a bill or do you have a prepayment meter?
2 - What is the energy price cap and what is it predicted to be?
It is important to check the current energy price cap figures set by Ofgem and it is wise to keep an eye on what the future energy price cap is predicted to be. The energy price cap does not apply to fixed-price energy tariffs and so you should be confident that the deal you agree to is better than the current and expected energy price cap figures. This article is regularly updated with the latest energy price cap predictions, so bookmark this article for the latest predictions.
3 - How long should you fix your deal for?
Most fixed-price energy deals last for 12 months, however, some deals can last longer. If the price of electricity and gas continues to fall, fixing your tariff could mean that you miss out on some better deals in the future.
4 - Are there any exit fees?
It is wise to check for any exit penalties and fees. Exit fees only usually apply to those looking to exit their existing fixed-price deal before the agreed term is up. Most customers can switch from a provider's default standard variable tariff penalty free, however, you should always check to make sure.
Pros and cons of fixing your energy tariff
Below we consider the pros and cons of fixing your energy tariff.
Pros of fixing your energy tariff
- Protection from energy price increases
- Consistent bills can help with budgeting
- Peace of mind
Cons of fixing your energy tariff
- Potential to miss out on better deals in the future
- You may need to pay an exit fee for early cancellation if prices continue to fall
- Less flexibility
How to fix your energy tariff
Firstly, check how much you currently pay for your gas and electricity. It is likely that the price you currently pay is capped due to the energy price cap and the Energy Price Guarantee but it is worth checking your bill so that you know the price you'll need to beat when deciding whether you should fix your energy costs.
Next, keep an eye on energy price predictions and the latest energy price cap figures from Ofgem as this will ensure you are fully informed before you commit to a new energy deal.
Finally, use a comparison site to compare the best fixed-price energy deals on the market. If there is a deal that beats what you are currently paying and is lower than the Energy Price Guarantee and/or energy price cap, then you may want to consider switching to that deal. Most comparison sites allow you to switch online in just a few minutes and your new provider will deal with the cancellation via your old provider on your behalf. Keep in mind that if energy prices continue to fall, there may be better deals that come to the market in the coming months. Fixing your energy tariff will mean you are unlikely to be able to switch to a better deal during your fixed term, unless you pay a hefty exit penalty fee.
If you are unable to find a competitive fixed-price energy deal then there are other ways to bring down the cost of your energy. Check out our article 'How to save money on your energy bills' for tips on how to reduce your energy costs. If you are struggling to make ends meet then you may wish to check out our Cost of Living Guide as it provides a number of money-saving tips as well as an extensive look at the help that is available.